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Dolby Laboratories Reports Second Quarter Fiscal 2011 Results

SAN FRANCISCO--(BUSINESS WIRE)--
Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's
financial results for its second quarter of fiscal 2011.

For the second quarter, Dolby reported total revenue of $250.0 million,
compared to $243.4 million for the second quarter of fiscal 2010.

Second quarter GAAP net income was $82.1 million, or $0.72 per diluted
share, compared to $85.9 million, or $0.74 per diluted share, for the
second quarter of fiscal 2010. On a non-GAAP basis, second quarter net
income was $92.2 million, or $0.81 per diluted share, compared to $93.1
million, or $0.80 per diluted share, for the second quarter of fiscal
2010. Dolby's non-GAAP measures exclude expenses related to stock-based
compensation, the amortization of intangibles from business
combinations, restructuring charges, and the related tax impact of these
items.

"Strong performance from broadcast, mobile, and gaming led to higher
than expected licensing revenue, while deployments of our cinema
products slowed," said Kevin Yeaman, President and Chief Executive
Officer, Dolby Laboratories. "With our technologies included in a wide
range of entertainment devices around the world, we remain focused on
extending these technologies into new geographies and new devices."

Financial Targets

For fiscal 2011, Dolby is now targeting revenue of $905 million to $945
million, and continues to target total gross margin of approximately 88
percent on a GAAP basis, and approximately 89 percent on a non-GAAP
basis. In addition, on a GAAP basis, Dolby is now targeting fiscal 2011
operating expense of $401 million to $413 million and other income of
approximately $6 million to $7 million, and continues to target a tax
rate of approximately 30 percent. On a non-GAAP basis, Dolby is now
targeting fiscal 2011 operating expense of $350 million to $360 million
and other income of approximately $6 million to $7 million, and
continues to target a tax rate of approximately 33 percent. Dolby's
non-GAAP targets exclude expenses related to stock-based compensation,
the amortization of intangibles from business combinations,
restructuring charges, and the related tax impact of these items. The
non-GAAP measures also exclude the one-time tax benefit resulting from
the release of the deferred tax liability for the first quarter of
fiscal 2011. While stock-based compensation expense may vary based on
factors such as stock price or volatility, Dolby continues to target
stock-based compensation expense for fiscal 2011 of approximately $47
million to $48 million. In addition, Dolby continues to target charges
related to the amortization of acquired intangibles for fiscal 2011 of
approximately $13 million and restructuring charges of approximately $1
million to $2 million. Dolby is now targeting diluted shares outstanding
of approximately $113 million.

These targets lead to an updated fiscal 2011 diluted earnings per share
target range of $2.49 to $2.65 on a GAAP basis and $2.75 to $2.91 on a
non-GAAP basis.

The Company's Conference Call Information

Members of Dolby management will lead a conference call open to all
interested parties to discuss Dolby Laboratories' Q2 2011 fiscal year
financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, May 5,
2011.

Access to the teleconference will be available over the Internet from http://investor.dolby.com/medialist.cfm
or by dialing 1-888-428-9496. International callers can access the
conference call at 1-719-325-2495.

A replay of the call will be available from 5:00 p.m. PT on Thursday,
May 5, 2011, until 9:00 p.m. PT on May 12, 2011 by dialing
1-877-870-5176 (international callers can access the replay by dialing
1-858-384-5517) and entering the confirmation code 6039019. An archived
version of the teleconference will also be available at www.dolby.com.

Non-GAAP Financial Information

To supplement Dolby's financial statements presented on a GAAP basis,
Dolby provides non-GAAP financial measures of gross margin, operating
expense, tax rate, and diluted earnings per share. These measures are
adjusted to exclude the charges and expenses discussed above. Dolby
presents such non-GAAP financial measures in reporting its financial
results to provide investors with an additional tool to evaluate Dolby's
operating results in a manner that focuses on what Dolby's management
believes to be its ongoing business operations. Dolby's management
believes it is useful for itself and investors to review, as applicable,
both GAAP information that includes the impact of stock-based
compensation expense, amortization of acquired intangible assets through
business combinations, restructuring charges, and the related tax impact
of all of these items on the provision for income taxes, and the
non-GAAP measures that exclude such information in order to assess the
performance of Dolby's business for planning and forecasting in
subsequent periods. Dolby's management does not itself, nor does it
suggest that investors should, consider such non-GAAP financial measures
in isolation from, or as a substitute for, financial information
prepared in accordance with GAAP. Whenever Dolby uses such a non-GAAP
financial measure, it provides a reconciliation of the non-GAAP
financial measure to the most closely applicable GAAP financial measure.
Investors are encouraged to review the related GAAP financial measures
and the reconciliation of these non-GAAP financial measures to their
most directly comparable GAAP financial measure as detailed above.
Investors are also encouraged to review Dolby's GAAP financial
statements as reported in its SEC filings. A reconciliation between GAAP
and non-GAAP financial measures is provided at the end of this press
release and at http://investor.dolby.com/medialist.cfm.

Forward-Looking Statements

Certain statements in this press release, including statements relating
to Dolby's expectations regarding revenue, gross margin, operating
expense, tax rate, and diluted earnings per share for fiscal 2011, and
its statements regarding extending its technologies into new geographies
and new devices and the benefits that may be derived from them are
"forward-looking statements" that are subject to risks and
uncertainties. These forward-looking statements are based on
management's current expectations, and as a result of certain risks and
uncertainties actual results may differ materially from those projected.
The following important factors, without limitation, could cause actual
results to differ materially from those in the forward-looking
statements: risks associated with the effects of macroeconomic
conditions; risks associated with trends in the markets in which Dolby
operates, including the personal computer, DVD and Blu-ray Disc™,
broadcast, consumer electronics, gaming, mobile, and automobile markets;
pricing pressures; the timing of Dolby's receipt of royalty reports
and/or payments from its licensees; Dolby's accuracy of calculation of
royalties due to its licensors; Dolby's ability to develop, maintain,
and strengthen relationships with industry participants; Dolby's ability
to develop and deliver innovative technologies in response to new and
growing markets in the entertainment industry; competitive risks; risks
associated with conducting business in China and other countries that
have historically limited recognition and enforcement of intellectual
property and contractual rights; risks associated with the health of the
motion picture industry generally; the development and growth of the
market for digital cinema and digital 3D and Dolby's ability to
successfully penetrate this market; Dolby's ability to expand its
business generally, and to expand its business beyond sound technologies
to other technologies related to digital entertainment delivery, by
acquiring and successfully integrating businesses or technologies; and
other risks detailed in Dolby's Securities and Exchange Commission
filings and reports, including the risks identified under the section
captioned "Risk Factors" in its most recent quarterly report on Form
10-Q. Dolby disclaims any obligation to update information contained in
these forward-looking statements whether as a result of new information,
future events, or otherwise.

About Dolby Laboratories

Dolby Laboratories (NYSE: DLB) is the global leader in technologies that
are essential elements in the best entertainment experiences. Founded in
1965 and best known for high-quality audio and surround sound, Dolby
creates innovations that enrich entertainment at the movies, at home, or
on the go. For more information about Dolby Laboratories or Dolby®
technologies, visit www.dolby.com.

Dolby and the double-D symbol are registered trademarks of Dolby
Laboratories. Blu-ray Disc is a trademark of Blu-ray Disc Association.
S11/24277 DLB-F

DOLBY LABORATORIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Quarter Ended

Fiscal Year-to-Date Ended

March 26, 2010

April 1, 2011

March 26, 2010

April 1, 2011

(unaudited)

(in thousands, except per share amounts)

Revenue:

Licensing

$

195,944

$

214,627

$

361,719

$

402,803

Product sales

39,839

26,347

87,496

72,374

Services

7,638

9,052

15,422

17,561

Total revenue

243,421

250,026

464,637

492,738

Cost of revenue:

Cost of licensing

5,537

5,771

9,563

9,732

Cost of products (1)

20,622

20,031

48,706

42,229

Cost of services (1)

3,464

2,655

7,147

5,635

Total cost of revenue

29,623

28,457

65,416

57,596

Gross margin

213,798

221,569

399,221

435,142

Operating expenses:

Research and development (1)

25,248

28,399

48,048

56,726

Sales and marketing (1)

26,724

37,545

57,108

75,762

General and administrative (1)

29,630

35,155

57,512

72,197

Restructuring charges, net

118

-

303

785

Total operating expenses

81,720

101,099

162,971

205,470

Operating income

132,078

120,470

236,250

229,672

Other income, net

1,851

2,024

4,058

3,888

Income before provision for income taxes

133,929

122,494

240,308

233,560

Provision for income taxes

(47,610

)

(40,012

)

(84,496

)

(64,313

)

Net income including controlling interest

86,319

82,482

155,812

169,247

Less: net income attributable to controlling interest

(421

)

(421

)

(828

)

(799

)

Net income attributable to Dolby Laboratories, Inc.

$

85,898

$

82,061

$

154,984

$

168,448

Earnings per share attributable to Dolby Laboratories, Inc. (basic)

$

0.75

$

0.73

$

1.36

$

1.50

Earnings per share attributable to Dolby Laboratories, Inc. (diluted)

$

0.74

$

0.72

$

1.34

$

1.48

Weighted-average shares outstanding (basic)

113,985

112,140

114,035

112,086

Weighted-average shares outstanding (diluted)

115,995

113,346

116,065

113,535

(1) Stock-based compensation included above was classified as
follows:

Cost of products

$

101

$

168

$

179

$

314

Cost of services

38

44

63

82

Research and development

1,548

2,611

2,744

4,934

Sales and marketing

2,217

3,367

3,949

6,363

General and administrative

3,258

4,550

5,936

10,307

DOLBY LABORATORIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 24, 2010

April 1, 2011

(unaudited)

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$

545,861

$

520,268

Short-term investments

302,269

266,818

Accounts receivable, net

54,257

73,657

Inventories

28,338

31,382

Deferred taxes

102,758

94,656

Prepaid expenses and other current assets

26,930

35,654

Total current assets

1,060,413

1,022,435

Long-term investments

190,837

347,092

Property, plant and equipment, net

94,097

103,590

Intangible assets, net

67,019

61,804

Goodwill

264,580

267,255

Deferred taxes

19,948

17,657

Other non-current assets

14,878

6,135

Total assets

$

1,711,772

$

1,825,968

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

148,214

$

136,216

Income taxes payable

7,895

821

Deferred revenue

9,647

10,575

Total current liabilities

165,756

147,612

Long-term deferred revenue

12,775

13,839

Deferred taxes

11,547

606

Other non-current liabilities

27,015

23,775

Total liabilities

217,093

185,832

Stockholders' equity:

Class A common stock

53

53

Class B common stock

59

59

Additional paid-in capital

329,902

303,424

Retained earnings

1,135,922

1,304,370

Accumulated other comprehensive income

7,801

10,355

Total stockholders' equity - Dolby Laboratories, Inc.

1,473,737

1,618,261

Controlling interest

20,942

21,875

Total stockholders' equity

1,494,679

1,640,136

Total liabilities and stockholders' equity

$

1,711,772

$

1,825,968

DOLBY LABORATORIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Quarter Ended

Fiscal Year-to-Date Ended

March 26, 2010

April 1, 2011

March 26, 2010

April 1, 2011

(unaudited)

(in thousands)

Operating activities:

Net income including controlling interest

$

86,319

$

82,482

$

155,812

$

169,247

Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation and amortization

9,588

11,506

17,394

21,045

Stock-based compensation

7,111

10,856

12,438

21,840

Amortization of premium on investments

2,110

4,570

3,978

7,805

Excess tax benefit from exercise of stock options

(5,631

)

(1,919

)

(10,284

)

(11,305

)

Provision for doubtful accounts

(97

)

523

(208

)

856

Losses on Put Rights

1,452

-

2,751

-

Gains on auction rate certificates

(1,607

)

-

(2,914

)

-

Deferred income taxes

(4,801

)

6,168

(10,430

)

(472

)

Cash distributions to controlling interest

-

-

(128

)

-

Other non-cash items affecting net income

178

633

894

157

Changes in operating assets and liabilities:

Accounts receivable

(1,047

)

(5,429

)

(21,447

)

(20,218

)

Inventories

(1,073

)

(3,574

)

2,417

(3,038

)

Prepaid expenses and other assets

6,336

(2,265

)

13,263

(3,715

)

Accounts payable and accrued liabilities

(1,728

)

13,648

6,731

(13,892

)

Income taxes, net

(1,279

)

(19,890

)

33,512

620

Deferred revenues

(10,042

)

2,831

(19,538

)

1,988

Other non-current liabilities

229

800

241

673

Net cash provided by operating activities

86,018

100,940

184,482

171,591

Investing activities:

Purchases of available-for-sale securities

(111,820

)

(58,347

)

(376,733

)

(368,007

)

Proceeds from sales of available-for-sale and trading securities

97,914

78,551

232,698

238,376

Purchases of property, plant and equipment

(7,445

)

(9,906

)

(18,064

)

(19,551

)

Acquisitions, net of cash acquired

-

-

-

(3,350

)

Purchases of intangible assets

-

-

(125

)

-

Proceeds from sales of property, plan and equipment and assets held
for sale

171

2,176

171

2,797

Net cash used in investing activities

(21,180

)

12,474

(162,053

)

(149,735

)

Financing activities:

Repayment of long-term debt

(392

)

-

(790

)

-

Issuance of Class A common stock (ESPP)

-

-

1,921

2,536

Net proceeds / (payments) from exercise of stock options and awards

11,821

(534

)

19,158

12,679

Repurchase of common stock

(67,463

)

(29,158

)

(83,124

)

(75,124

)

Excess tax benefit from exercise of stock options

5,631

1,919

10,284

11,305

Net cash used in financing activities

(50,403

)

(27,773

)

(52,551

)

(48,604

)

Effect of foreign exchange rate changes on cash and cash equivalents

(3,324

)

989

(4,207

)

1,155

Net decrease in cash and cash equivalents

11,111

86,630

(34,329

)

(25,593

)

Cash and cash equivalents at beginning of period

406,238

433,638

451,678

545,861

Cash and cash equivalents at end of period

$

417,349

$

520,268

$

417,349

$

520,268

GAAP to Non-GAAP Reconciliations

(In millions, except per share data)

The following tables show the Company's second quarter of fiscal
years 2010 and 2011 GAAP financial measures reconciled to non-GAAP
financial measures included in this release:

Net income:

Fiscal Quarter Ended

March 26, 2010

April 1, 2011

GAAP net income

$

85.9

$

82.1

Stock-based compensation

7.2

10.7

Amortization of acquired intangibles

4.2

4.4

Restructuring charges, net

0.1

-

Income tax adjustments

(4.3

)

(5.0

)

Non-GAAP net income

$

93.1

$

92.2

Diluted earnings per share:

Fiscal Quarter Ended

March 26, 2010

April 1, 2011

GAAP diluted earnings per share

$

0.74

$

0.72

Stock-based compensation

0.06

0.09

Amortization of acquired intangibles

0.04

0.04

Restructuring charges, net

-

-

Income tax adjustments

(0.04

)

(0.04

)

Non-GAAP diluted earnings per share

$

0.80

$

0.81

Shares used in computing diluted earnings per share

116

113

The following tables show the Company's fiscal year 2011 GAAP
financial targets reconciled to non-GAAP financial targets
included in this release: